The challenge now has become full integration of technology with the insurance experience of customers.

When Manulife launched claimsimple.hk in January, it finally abandoned a decades-long complex legacy system filled with paper claims and branch visits. More than that, it also launched a programme that tracks client fitness and rewards them with huge discounts and promos. Insurers in Hong Kong are finally learning to deal their digital cards right, with some of the city’s best insurtechs keeping them close company.

Early this year, insurers such as MetLife, AIA, Allianz, and Zurich announced some of their insurtech plans after the Hong Kong Insurance Authority rolled out a sandbox for insurers to flexibly partner with tech guys. Guy Mills, chief executive officer, Manulife Hong Kong said that with insurtech, some products such as health insurance as well as mutual funds can actually be sold online.

He said that Hong Kong consumers have an increased awareness towards health and strong demand for medical insurance and critical illness products, as a result of significant medical inflation, advances in medical technology, and the underserved health market. This provides insurers with open doors to provide sophisticated medical insurance for the entire population. Furthermore, with a rapidly ageing population and a significant retirement income gap, Hong Kong is a hotbed for customers who wish to improve their quality of life during retirement, which provides huge growth opportunities for insurers.

Digitalising at last
Across the globe, the insurance industry has been one of the laggards in terms of riding the digital wave. Complex legacy systems, company culture, and various tolerances for risk have made it difficult for innovators to integrate new technology and data into existing business strategies. Lee Wood, chief executive officer, MetLife Hong Kong said that the top priority to overcome these challenges is to encourage staff and agents to adapt and modernise, and support insurtech innovations.

Despite being a latecomer, the insurance industry has finally come to grips with the need to evolve with rapidly changing technologies. Consumers of all other sectors have already immersed themselves in the digital space, and if insurers wish to capture this huge digital market, they have to get their foot in as well.

“The insurance industry is increasingly leveraging connected technologies to improve customer experience and build deeper relationships with customers. New tools and platforms are driving deeper engagement and enhancing efficiency – for example, connecting insurance plans with digital tools or health apps to encourage better self-disciplined health management,” Wood added.

Mark Christal, head of region in Northeast Asia, and chief executive officer, Old Mutual International, Hong Kong, said that digitalisation has definitely helped streamline processes and give customers greater access to their finances amidst their increased expectations. He added that this has become a key part of the value proposition that insurance companies and advisers offer their customers, presenting a greater opportunity for them to develop deeper and longer relationships with customers.
Christal said that digitalisation for insurance not only means robo- services, but also complex financial planning for evolving customer demographics. According to him, insurers are seeing more highly mobile individuals with different assets across countries and requiring professional advice on holistic wealth, tax, and legacy planning.

The flip side
But whilst digitalisation offers several opportunities, it also poses new challenges for insurers. According to Wood, more than five years ago, the industry was focused on simply moving offline engagement online. Nowadays, the challenge has become full integration of technology with the insurance experience to deeply engage with customers and provide what they need. He said that insurers are not only giving consumers one more channel to buy insurance, but providing a new experience that was unavailable to them before.

Mills added that the growth of insurtech will have a long-lasting impact on the insurance landscape. Insurance companies must have a way of productively and strategically collaborating with insurtech companies, lest they trail behind again in the digital game. The challenges that insurtechs pose have encouraged more and more insurers in the city to leverage new technology, data, and analytics and to engage with customers digitally.

“A key challenge for the sector as a whole is to continue to meet customer expectations whilst adhering to the regulatory challenges posed. This is perhaps why digital transformation in the financial industry is, relatively speaking, less advanced than other sectors. Having said that, we believe leveraging technology to engage customers is absolutely critical to the future success of the sector,” Christal said.

Additionally, increasing regulations around the world have made wealth planning more complex. Christal said that independent financial advice has become more important than ever in providing better customer outcomes.

Don’t beat them, join them
To play the digital game well, insurers in Hong Kong have learned to make insurtechs their allies in coming up with personalised and accessible insurance solutions. For instance, Manulife launched its ManulifeMOVE programme in Hong Kong, one of the firsts to integrate an innovative health-tracking programme with insurance solution that rewards customers who maintain active lifestyles with discounted premiums. In January 2018, Manulife launched claimsimple.hk, an e-claims solution that lets customers make a medical insurance claim online anytime, anywhere via their mobile device or PC in less than a minute.

Meanwhile, Old Mutual International rolled out Wealth Interactive, an online platform to keep track of investment performance no matter where consumers are, whenever they need it. Christal said that it is not only an online servicing platform, but a channel for distributors to provide better service to their customers.

“Alongside greater customer access, it allows advisers to leverage technology and tools to manage customers’ portfolios whilst remaining close to them. Wealth Interactive also provides data to support client segmentation, so advisers can ensure a consistent and structured approach to servicing clients,” Christal added.

In terms of insurance education, MetLife Hong Kong’s MetLife Discovery allows a quick and easy access to information about insurance Woodand the specific terms of insurance coverage that a certain demographic is considering. Information includes money that consumers should expect to spend and general price indicators for the cost of such a coverage.

Insurance of the future
Wood said that four changes are likely to further transform the insurance market in the future: digital transformation, the importance of a trusted advisor, increasing health consciousness, and transparency and trustworthiness. According to him, insurance will be enormously different in the future, and data analysis will revolutionise how insurers meet their customers’ changing needs. He added that the ability to mine big data for deep insights has radically altered the dynamics of how one becomes “the trusted advisor”.

“The regulatory and consumer demand for greater transparency will continue to shape the services the sector offers. The landscape for giving advice internationally is changing and as more advisers are moving towards clear, transparent, customer centric charging models, the need for advisers to demonstrate the value they are adding is becoming increasingly important. Advisers can utilise technology to increase customer engagement and understanding, and to share information efficiently and effectively,” Christal added.

At the end of the day, customer centricity is key. Mills said that the demand for a better customer experience will continue to drive technology change in the next few years, with all sorts of information available at their fingertips.

The Office of the Commissioner of Insurance in Hong Kong will be replaced by the Independent Insurance Authority from June 26 . What changes can the insurance industry expect?

If one looks at the work calendars of Hong Kong insurers for the next couple of months, it will likely be jampacked with preparatory tasks for the momentous regulatory shift on June 26 when the Independent Insurance Authority (IIA) replaces the Office of the Commissioner of Insurance (OCI). Firms will be bracing for the new provisions that will be implemented when the authority takes over the statutory functions of the office, and the government collection of authorization fees and user fees on specific services. Legal experts advise insurers to start preparing for the new regulatory regime that is moving away from self-regulation.

Peter Cashin, partner at Kennedys Law LLP (Hong Kong) reckons insurers should consider implementing revised compliance policies and internal controls to facilitate compliance with the new requirements including, for example, the “fit and proper” assessments of relevant officers. These revisions will also improve their ability to respond o the IA’s news powers.

Firms should also focus on completing their planning to finalise new resources needs, draft necessary additional policy disclosure statements, and set up liability exposure mitigation measures including insurance coverage.

The IIA has expressed its intent to strictly monitor compliance by life insurers to ensure that markets, which continue to grow rapidly, are developed and marketed with the fair treatment of customers in mind.

Total gross premiums of the Hong Kong insurance industry in 2016 amounted to HK$448.8b (US$57.7b), representing an increase of 22.7% over 2015, according to provisional statistics released by OCI in March. The total amount of revenue premiums of long term in-force business increased by 26.1% to HK$403.2b (US$51.8b) in 2016 compared with 2015; while new office premiums of long term business, excluding the retirement scheme business, increased by 41.3% to HK$185.5b (US$23.9b) compared with 2015. “These are the most significant regulatory reforms to the insurance industry in Hong Kong for 20 years,” says Cashin, and insurers are being advised to set up the proper compliance systems to avoid painful fines.

A slew of changes
In June, when IA replaces OCI, most provisions of the ICAO2015 will be implemented, excluding provisions concerning insurance intermediaries. ICAO2015 provides for the regulation of certain individuals as key persons in control functions. Cashin says these are persons holding positions that are likely to exercise a significant influence on the insurer’s business, namely those performing risk management, financial control, compliance, internal audit, actuarial and intermediary management functions. “An authorised insurer will only be able to appoint an individual as a key person in a control function if that individual is fit and proper and approved by the IA. That approval can also be revoked,” says Cashin.

ICAO2015 will also provide for levying of pecuniary penalties for the misconduct of directors and controllers of an insurer when the IA transition takes effect. Penalties can amount to as much as the greater of HK$10m (US$1.3m) or three times the amount of the profit gained or loss avoided by the insurer or the intermediary.

For insurers that breach the law, Cashin says the IA could require the insurer to provide details on the breach in the course of determining and imposing the pecuniary penalties. The IA will inquire about the severity the nature, severity and impact of the relevant misconduct or failure, as well as any prior instance of such relevant breach. It will also consider the insurer’s conduct in response to the relevant breach -- whether remediation or concealment -- and the financial consequences of the relevant breach in question.

The Insurance Appeals Tribunal
Another ICAO2015 provision that will be implemented in June is the establishment of the Insurance Appeals Tribunal (IAT), a quasijudicial body independent of the IA set up to ensure “adequate” checks and balances on the IA’s exercise of its powers, says Cashin. The IAT will review specified decisions of the IA, including those on authorisation, licensing and disciplinary actions. The tribunal will also determine questions or issues arising out of or in connection with a review.

An application to the IAT for a review of a decision of the IA must be brought in writing within 21 days after that decision. The tribunal will be given power to confirm, vary or set aside the decision; or remit the matter to the IA with such directions as it considers appropriate. It also has the discretion to award costs. A notable provision relating to IAT is a flexibility for the tribunal, with the consent of both parties to the review, to determine that review based only on written submissions. “This procedure allows appellants to choose a less expensive and cumbersome alternative,” says Cashin.

New and adjusted fees
In addition to setting up processes to accommodate the provisions on the pecuniary penalties and IAT, Cashin notes that insurers will need to accommodate an array of new fees and adjustments to existing ones after the June transition. The application fee for approval of the appointment of a controller such as a managing director or a chief executive officer, a director, or a key person in control functions will be HK$18,000 (US$2,300) per appointment, while the notification fee for such appointments will be HK$5,000 (US$640) per appointment.

There is a new notification fee to propose a person to become a controller – a person who alone or with any associate has 15% or more of the voting power at any general meeting of the insurer, says Cashin – either HK$100,000 (US$12,800) if the person has 50% or more of the voting power at any general meeting, or HK$50,000 (US$6,400) if the persona has less than 50% voting power.

Finally, the initial authorisation fee to conduct either long term or general insurance business will now be the sum of a fixed amount at HK$300,000 – with different fixed fees for composite and captive insurers – and a variable fee derived from multiplying the insurance liabilities by a variable fee rate capped at HK$7m (US$900,000). Insurers will need to shoulder yearly incremental increases to the variable fee rate to a maximum of 0.0039% for the year 2022/2023 onwards.

After IIA takes over the work of the OCI, the next stage for regulatory change will involve the new licensing regime for insurance intermediaries which will be introduced likely in late 2017 or 2018. “Preparations have commenced for the transition to a statutory licensing regime,” says Lloyd’s in Hong Kong. “Local coverholders should be aware of this change and prepare in advance for the change in regime.”

Currently, insurance intermediaries are regulated by the three local selfregulatory organisations, namely the Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association for brokers, and the Insurance Agents Registration Board for agents. In taking over the statutory functions of the OIC and, eventually, the regulation of insurance intermediaries, IIA hopes to create a “new, independent, more holistic and effective regulatory regime to facilitate the sustainable development of the industry and to better protect the interests of policyholders.”

“The establishment of the IIA is a big step forward for the insurance industry of Hong Kong. We look forward to collaborating with all stakeholders, including industry practitioners, to build the Authority and grow the insurance industry in Hong Kong,” says Dr Moses Cheng, chairman of the IIA. “At this stage, our priority is to engineer a smooth transition from the current regulatory regime to the new one, and get ready to meet the regulatory challenges and rising public expectations.”

The next several months will also determine the new funding mechanism for the IIA. Lloyd’s says that the long-term target is for the IIA to be financially independent of the government. About 70% of its expenditure will be met by the policyholder levy on premiums for all insurance policies written by a Hong Kong coverholder or service
company. The remaining 30% will be met by the various authorisation/ licence and user fees.

 

The industry is grappling with increasing healthcare costs and outdated regulation.

When FWD launched a fully direct and digital approach to life insurance in Singapore, it was a response to the gaping hole it saw in the traditionalagency model predominant in the island. Disruption is rising as a strategy amongst insurance players as Singaporeans become more connected and mobile, and become better equipped to purchase insurance products online and directly from providers.

Financial technology firms are also cranking out new tools and business models to improve online insurance products, although the government is rolling out regulation to make sure consumers are better protected as the industry continues to post steady growth. The boom in life insurance also comes with worries over escalating health insurance claims.

“We see a general trend that in more developed markets, there is an increasing appetite amongst consumers to purchase directly, and we are therefore reflecting that in Singapore,” says Abhishek Bhatia, CEO at FWD Insurance Singapore. “With the increased connectivity and mobility that Singaporeans have, combined with their growing preference for online commerce, it seemed like a natural decision for us to choose a direct-to-consumer model.”

Bhatia cited a recent FWD research that the insurance industry lags the banking, travel, and retail industries in terms of adapting to the digital world, with only 52% of 600 Singaporeans surveyed thinking that insurance is well adapted compared to banking (100%), travel (92%), and retail (77%).

“The local insurance market is predominantly made up of players with traditional agency channel. Whilst this model might have worked for them, we studied local market trends and identified opportunities we felt we could address better,” says Bhatia of their decision to go with a digital and direct-to-consumer approach.

“Singapore is one of the most digitally and mobile connected countries in the world, and we know Singaporeans will continue to appreciate the choice of being able to buy what they need online,” he adds.

FWD is planning to invest S$500m to grow its presence in Singapore over the next five years and introduce other insurance policies that reflect the needs of modern Singapore, which Bhatia says will be defined by a growing middle class that increasingly understands the value of insurance and financial technology (fintech) firms. “Fintech has helped to drive innovation and digital transformation in the insurance industry,” says Bhatia.

“The fintech story in recent years has concentrated on leveraging new technologies and disruptive business models to enable the development of new products and services for previously underserved markets. The same dynamics have been driving change in the insurance industry.”

Direct purchase insurance
The concept of directly buying insurance has been gaining steam since April last year when the Monetary Authority of Singapore (MAS) also introduced the direct purchase insurance (DPI), a class of simple life insurance products sold by companies without commissions andfinancial advice. “The introduction of DPI by the MAS is an excellent initiative, offering simple, effective, easy to understand products that are perfect for most Singaporeans, especially those purchasing life cover for the first time,” says Bhatia.

MAS, in collaboration with insurance industry and consumer groups, also launched the compareFIRST web service (www.comparefirst.sg) which lets Singaporeans compare various life insurance products, including premiums and benefits, to make a better decision before their purchase.

Despite the positive developments to enable Singaporeans to purchase insurance products online and direct from providers, many still find the process difficult and daunting. “While the DPI product is simple, the application process is not which has put many people off,” says Bhatia.

DPI and the move towards online insurance products is part of a larger trend of virtual healthcare, especially in Asia where both life insurance demand and technology use are firmly growing. “The increase in virtual healthcare is another interesting trend, with increasing demand for digital technology to deliver healthcare at the click of a button,” says Derek Goldberg, managing director, Southeast Asia at Aetna International.

“This is of particular interest for Singapore and other Asian markets, due to the availability and extensive use of technology across the region,as well as the need to meet the challenges of access to care for a rapidly developing and demanding population.”

The life insurance industry in Singapore continues to report steady growth with an 8% increase in total weighted new business premiums for year-to-date third quarter 2016 (YTD 3Q16) compared with the same period in 2015, according to the Life Insurance Association Singapore (LIA Singapore).

Total weighted new business premiums amounted to S$2,33m for the first three quarters of the year. In the YTD 3Q16, the industry also recorded an 11% increase to S$730.8m in weighted single premiums, with more than threefourths (78%) comprising of single premium par and non-par products, while less than one-fourth (22%) were single premium linked products. YTD 3Q16 also saw a 6% increase to S$1,600.1m in weighted annual premium.

Approximately 10,000 more Singapore residents obtained additional health insurance coverage, mostly through Integrated Shield Plans (IP) and/or riders, andapproximately one in two individuals  in Singapore (2.87m lives) are covered by health insurance with total premiums amounting to S$1,367m,as at 30 September 2016. 

“The continuing increase in the number of lives covered by IPs and IP riders show Singapore residents’ growing appreciation of the necessity for health insurance and the choice of additional benefits provided by IP plans and IP riders,” says Dr Khoo Kah Siang, president of LIA Singapore.

Skyrocketing healthcare costs
With life insurance coverage climbing in Singapore and a barrage of disruptions that are changing how the industry operates, the challenges of skyrocketing healthcare costs and regulatory changes loom over the near-term horizon.

“In as much as life insurers need to play their part, unless collective and specific efforts are made by all the different parties, Singapore will notbe able to effectively tackle escalating healthcare costs that are beyond the usual incremental increase, and therefore escalating health insurance claims,” says Khoo.

The industry-led Health Insurance Task Force has forwarded some key recommendations to reduce healthcare costs while maintaining the quality of care like including the publication of medical fee benchmark. It has also been proposed to include pre-authorisation to provide clarity to the policyholderpatient on the level of coverage they have for treatments before they proceed with any medical procedures.

“The purpose of these recommendations is to curb overtreatment and/or over-consumption which, in turn, are expected to mitigate the inflation of healthcare claims,” says Khoo.

Goldberg argues that the rising cost of claims and over-utilisation of medical treatment are one of the significant challenges for health insurers in the region at present. “Coupled with the increased emphasis that regulators are placing on market stability and integrity, insurers will need to look to innovative solutions to build a sustainable future,” he says.

Goldberg cites the MAS making significant enhancements to its insurance regulatory framework, leading to proposed amendments to the Insurance Act of 2012. Meanwhile, Bhatia reckons the regulatory framework in Singapore is very robust, but he points out that some of the regulations need to be  amended to accommodate the wave of disruption sweeping the industry.

“Current industry guidelines were framed for a face-to-face business model and might not be fully appropriate for an online or direct distribution model,” says Bhatia.